The importance of variance analysis in a manufacturing company

CHAPTER ONE
1.1 INTRODUCTION The success of a business organization very much depends on its decision making,
planning and control by the management in charge of it. Management themselves also depend on some relevant, good, accurate, clearly purposes.
This information is also expected to be cost effective (i.e. the cost of determining the
information must not be in excess of the benefit to be derived from it). It is conceived that any good functional organization management should be interested in
the business performance evaluation and appraisal so that inherent variances are easily
identified for decision making to plan and control the organization efficiently. However, analysis of variances in an organization say manufacturing company as a topic
is a way to resolve the fore mentioned inherent problem. 1.2 HISTORICAL BACKGROUND OF THE STUDY Variance analysis is an important area of study in manufacturing company for so many
years back; there have problems of variance in the manufacturing companies, which have
then become fundamental. The variances are usually arrived at due to the inadequacy of the company management
to set up suitable standard or lack of adequate and relevant information. To break the jinx of coming across variances in the manufacturing companies, such
variances arrived at initially have to be analyzed and process as corrective measure to
guide against any future variances. 1.3 STATEMENT OF PROBLEMS Usually, a work of this nature is always a time consuming one, this is not an exception.
For the purpose of this research work, the following are the statement of problems. i. To analyze the purpose and usefulness of variance analysis. ii. To examine the various type of variances in manufacturing company. 1
iii. To know the extent at which variance analysis is used in a typical manufacturing
company. iv. To examine the variance analysis used in control process. v. To evaluate the modern techniques for setting standards. vi. To identify how variance analysis are used in planning process. vii. To make recommendation for its proper use in all organization concerned. viii. To study the inability of management to ensure that they monitor the set
standards. ix. To investigate the inability of management to set an acceptable standard level of
variance. 1.4 OBJECTIVES OF THE STUDY The main purpose of this study is to have a clear understanding, on objectives like (1) to
analyze the purpose and usefulness of variance analysis. 1.5 SIGNIFICANCE OF THE STUDY The importance of variance analysis in an organization cannot be over emphasized they
are: 1. Vital and reliable information are needed for performance appraisal and the
evaluation of the organization that required variance analysis. 2. Aid management to know the extent of deviation from the plan and what action to
take. 3. Helps to evaluate managerial fulfillment of corporate objectives. 4. It also assists in making budget and setting proper standards so as to enhance the
achievement and maintaining of a desired state of the organization. 5. Is part of the planning cycle i.e. to compare results with the plan and identify
differences and their causes. 1.6 RESEARCH QUESTIONS According to the problems of variance analysis in manufacturing companies, it is
important to note that certain things bother the mind of the researchers and posted many
question s which must be answered. Some of these questions are: i. Variance analysis have any usefulness in a manufacturing company ii. Variance analysis effectively helps to identify the factors responsible for
undesirable performance
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iii. If done effectively, variance analysis leads to the attainment of business objectives
or goals. iv. Profitability is the number one reason for consulting variance analysis. v. Management engage on effective variance analysis as a means of profitability. 1.7 HYPOTHESIS FORMULATION Hypothesis is a statement of assumption that is awaiting verification. It can be expressed
in three ways: Ho: variance analysis is not useful in manufacturing companies Hi: variance analysis is useful in manufacturing companies Ho: There is no significant relationship between effective variance analysis and
manufacturing company productivity. Hi: There is significant relationship between effective variance analysis and
manufacturing company productivity. 1.8 SCOPE AND LIMITATIONS OF STUDY The research work will cover the explanation of some issues in management functions
and accounting to incorporate various analysis as a tool for planning, controlling and
decision making in manufacturing company e.g. Nestle Nigeria plc Here, I would like to recognize and acknowledge the inherent factors in the research
situation that are likely to affect the result of the investigation. Such factors include the
following: i. Lack of finance ii. Time constraint iii. Dearth of statistical data and information. 1.9 DEFINITION OF TERMS Some of the relevant terms will include i. Standard cost: This is pre-determined cost per unit e.g. material cost per unit,
labour cost per hour etc. ii. Basic standards: They are long term standards which remain unchanged over the
years. iii. Ideal standard : These are based on the best possible operating condition (i.e. no
breakdown, no idle time etc) iv. Attainable standards: This is a currently attainable standards based on efficient
operating conditions. v. Budgeted cost: This is the pre-determined cost in totality. vi. Actual cost: This is the cost actually incurred during the period. 3
vii. Variance analysis: This is the investigation of variances by causes and
responsibilities so as to implements corrective measures. viii. Planning: This is the identification of objectives and the selection of policies and
method necessary to achieve the objectives. ix. Controlling: This is the activities which involved the qualification of the
objectives, measurement of accomplishment of events against the standard of
plans and the invitation of the corrective action to ensure attainment of a company
through the planning, organizing, coordinating and controlling of variances
towards the achievement to pre-determined objectives. x. Decision making: Decision making is an accepted part of everyday human life. It
may be made on the spur of the manual or at some point between two extremes
e.g. standard cost and actual cost. xi. Forecasting: It could be used to denote formal process of predicting future events
that will significantly affect the effective functioning and main objective of the
organization.